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Affordable Earthquake Insurance Is Possible

Affordable Earthquake Insurance Is Possible

If you are a Los Angeles property owner, the powerful seismic activity occurring around the world may have you concerned about the next “BIG ONE” on the West Coast.  Scientists have predicted that a devastating earthquake (magnitude 8 or 9) could happen at any point within the next  twenty to fifty years.  The more recent earthquake events may have you thinking twice about insurance.  You may be pondering the cost of the necessary insurance, but the bigger question is this: can you actually get the coverage you need?

Many people across the country know about the San Andreas Fault; most folks are also aware that there are many other fault lines throughout the state of California.   In fact, most people assume that California homeowners, commercial property owners and business owners have enough earthquake insurance to protect their assets.  It is certainly a reasonable assumption, considering the seismic activity that is experienced regularly and the close proximity to so many fault lines.  The earthquake insurance statistics are surprising, however; only 12% of all property owners have succeeded in getting affordable earthquake insurance coverage in California.  What is even more surprising is the fact that, while cost may be a factor for some property holders, denial of coverage is an even bigger factor.

Earthquake insurance comes at a high premium, especially for property owners in California.  The California economy has struggled in the last few years and many property owners cannot afford the additional expense of earthquake insurance when times are tough.   Another reason that some property owners have chosen not to spend money on earthquake insurance is this: even with coverage, the deductibles are still very high, although the amount of coverage is typically not enough to fully cover potential damage costs.

While costs, deductibles, and coverage amounts are certainly major considerations when thinking about earthquake insurance, there are a number of other facts to consider when weighing the pros and cons of earthquake insurance in California:

  • Commercial properties that were built prior to the late 1980’s probably do not meet current, more stringent, building codes.
  • It is more expensive to recover from earthquakes than any other natural disaster.
  • If your building has extensive damage or is completely destroyed, as a property owner, you are still responsible for the balance left on the mortgage.

If a commercial property is located near a fault line, as many Los Angeles buildings are, and it is more than 25-30 years old, purchasing adequate earthquake insurance is a financially wise idea.  The question is this: is it possible to get accepted for adequate, yet affordable, coverage?

If you have attempted to get financing on a commercial property, you are probably already aware of building safety requirements and the inevitable PML (Probable Maximum Loss) rating required by lenders.  Banks and insurance companies are mostly concerned with reducing the amount of risk they carry, therefore they are looking for a low PML rating, typically 20% or less. When lenders see a PML of less than 20%, they are generally satisfied when a thorough inspection and a comprehensive, professional seismic retrofit has been completed on the building.  Once a seismic retrofit has been done, financial institutions can be assured that measures are in place to reduce the chance of catastrophic damage and destruction that would cause the property owner to default or walk away from their mortgage loan.

Insurance companies have recently begun changing the types of policies that they offer.  In the future, they may not even write coverage for earthquakes due to incredibly high past losses.  When earthquake coverage is currently awarded, rates are much, much higher than in the past.  In fact, rates have increased 3 to 6 times since 2005.  Many properties today have a PML that is higher than 20% because they were built more than 25 years ago.  Without retrofitting these older buildings, there is a very strong chance that they will fail in the event of a strong quake.  Un-reinforced masonry buildings, for example, fail more than any other type of building combined on the West Coast.  When this type of building does not go through a seismic retrofit process, chances are great that that the building will collapse during a powerful earthquake. History tells us that when un-reinforced masonry buildings do crumble, the damage field inevitably encompasses neighboring properties, unsecured piping can burst and flood, the likelihood of fires increases and sadly, fatalities are likely to occur.  Buildings with a high PML rating that have not gone through a seismic retrofit process generally are unable to procure adequate earthquake insurance coverage.

If you are seriously considering earthquake insurance, a seismic retrofit is one of the best ways to make earthquake insurance affordable and even possible.  When you arrange for a thorough seismic retrofit building inspection to start the process, ask for the professional contractor to estimate the amount of a reduction in earthquake insurance with a seismic retrofit

Call the professional team at Saunders Commercial Seismic Retrofit in Los Angeles today.  They will inspect your commercial property and will provide a comprehensive list of the strengthening requirements for your building.  They can also include a “before and after” retrofit insurance quote upon request.  By partnering with several insurance providers, they can easily demonstrate the potential return on investment after a seismic retrofit has been completed.  To get more information on how to get affordable earthquake insurance and a seismic retrofit estimate, call Saunders Commercial Seismic Retrofit.

Southern California Office

(949) 646-0034

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